In his State of
the Union address president Obama told us that “We must make the hard choices
to reduce the cost of health care and the size of our deficit.” We have learned
to beware when elites talk of “hard” and “tough” choices. These terms are
synonymous with ‘unpopular’, and those for whom life will be made hard and
tough are never the ones selling the choices. Historically, in times of crisis
the working population has been made into shock absorbers for the oligarchs,
and the austere policies required -by the plutocrats- to undo the effects
of the crisis on elites have been put forward as bipartisan. The policies are
alleged to be the product of no particular interest but represent a consensus
shared by all participants in the political process. What is pressed upon the
people is thus held to be beyond politics, determined by experts to be
pragmatically necessary.

This general
strategy was born in the period 1899 – 1907. There had been a series of
failed attempts to address the problem of serial recessions and depressions
that had plagued the formative years of nineteenth-century industrializing
capitalism. Between 1867 and 1900 the economy experienced eight business cycles
over 396 months. During this period the economy expanded during 199 months and
contracted during 197. This stretch included three severe depressions, from
1873-1879 (the longest contraction in US history), 1883-1885 and 1893-1897. The
captains of business understood that this period of serial bankruptcies and
chronic instability was the inevitable result of cutthroat competition, which
drove prices into a downward spiral to the level at which capitalists were
unable to cover their huge fixed costs. Many of the most prominent businessmen
of the time, including JP Morgan and Andrew Carnegie, came to understand that
combination, consolidation and merger were essential to protecting their
interests by muting competition and administering markets and prices.
Coordination trumped competition when the interests of the ruling class were at
stake. It was common to hear and read corporate heads and attorneys trashing
the going ideology of unmitigated competition as a fool’s fairy tale. A way was
sought -in vain, as we shall see- for private business to get its
house in order on its own.

The business
barons attempted a series of combinations, from “gentlemen’s agreements” to the
pool and the trust. None of these efforts bore fruit: the individualism
endogenous to capitalism led parties to these consolidations repeatedly to
break their agreements. Finally, from 1898 to 1902, businessmen resorted to an
unprecedent wave of corporate mergers, in which the absorbed companies lost
their independent legal and business identities. The opportunity for parties to
intercorporate agreements to break their agreement was eliminated. But now
competition took new forms, the most effective of which was the entry into key
industries of smaller newcomers with smaller fixed-cost debt obligations and
the ability to compete… by price cutting! Fratricidal competition was once
again, in spite of all the efforts available to business to eliminate it,
threatening to undo the ascendancy of the biggest giants.

The situation was
grave. The market share of the leading behemoths -US Steel, Standard Oil,
International Harvester, Anaconda Copper and the American Can Company- actually
fell during the first two decades of the twentieth century. Only about half of
the large enterprises formed by combination between the late 1880s and 1906 survived.
Iron Age, the steel industry
magazine, wrote in 1909 that “So large a part of the current business has been
going to those who were either willing or compelled to make lower prices that
the situation finally became unendurable.”

All the private
methods of eliminating competition had failed to effect the stable market
environment sought by the consolidators. A hitherto untried strategy needed to
be found that would successfully address the problem of destructive competition
that private capital by itself was powerless to fix.

The forty to
fifty year persistence, in spite of every strategy available tothe private sector, of recessions, depressions, bankruptcies and
cutthroat competition constituted the first major crisis threatening US
capitalism as a system. When
attainable strategies failed to produce stability, businessmen concluded that
not only did capitalism preclude automaticmarket self-regulation, it also
resisted any private efforts
to render the system sufficiently dependable to enable investors to expect
profits with the desired confidence. Big capital came to recognize that the
only effective alternative was political intervention in the form of government regulation.

The rhetoric of
the business community since the New Deal has been replete with ritual
denunciations of government regulation of the private economy. These tirades
are always aimed at government intervention intended to protect working people
from the vicissitudes of the market. When the interests of capital are
jeopardized, business does not hesitate to seek government succor. In the
period of industrialization, prominent businessmen evidenced no reservations in
their desire for government intervention to regulate and stabilize an economy
otherwise insufficiently responsive to the needs of capital. In effect, these
captains of industry recognized chronic recessions and depressions, with their
retarding effects on the growth of output, productivity and profits, as at
bottom a political problem
demanding a political solution. Thus was born what the historian Gabriel Kolko
has called “political capitalism”, namely business elite support for the “utilization
of political outlets to attain conditions of stability, predictability, and
security -to attain rationalizatiuon- in the economy.”

Referring of the
destructive effects of persistent cutthroat competition Andrew Carnegie wrote: “it
always comes back to me that Government control, and that alone, will properly
solve the problem.” Business leaders were clear that it was federal government regulation they were after. State and
local laws were disparate; production for a national market required the
uniformity that only federal authority could produce. Between 1899 and 1907 a
consensus was formed among large-corporate capitalists, trade unionists and
small producers advocating legislation establishing federal regulation of
reasonable restraints of trade.

In 1899 the
Chicago Civic Federation sponsored the Chicago Conference on Trusts, which
promoted the acceptance of corporate bigness as a fait accompli, with the proviso that the power of these
companies be curbed by government regulation. How exactly this was to be
accomplished was a matter of intense dispute, as the conferees represented
perspectives as heterogenous as laissez-fair capitalism, Marxian socialism and
single-tax populism.Concord was in effect ruled out from the start.Dissatisfied
with the results, a group of delegates called a splinter conference four months
later, the National Anti-Trust Conference, but the diversity of the delegates
generated the same kind of schism that had doomed the earlier assemblage.

Unanimity was
essential to the agenda of elites, who understood that the appearance of bipartisanship was most likely to encourage the mobilization of
popular support for congressional action. Marshalling public opinion was
especially challenging, since elites aimed to persuade a public largely hostile
to the corpoprate giants to acquiesce in the incorporated firm as the dominant
form of business enterprise and large-corporate administration of markets. The
elite hope was that the advocacy of a strong government regulatory role would
dampen widespread suspicion of the giants.

With this in
mind, the National Civic Federation organized the National Conference on
Combinations and Trusts in October 1907. This time, agenda setting and delegate
selection were deliberately controlled. The 492 delegates included
representatives of commercial, manufacturing, labor, agricultural and civic
associations, presidents of prestigous universities, corporate officers and
presidents of state bar associations, among others perceived as private elites.
Deliberately excluded from the proceedings were the political elements though
to have contributed disproportionately to the discord that had foiled the
earlier meetings. Nationally prominent political leaders and U.S. senators and
representatives were not invited.

The idea was to
de-politicize the trust question. Oligarchic power would be taken out of
politics, thereby rendering democracy irrelevant to corporate priorities and
national policy making. The recommendations of the Conference would be
presented to the public and to Congress as nonpartisan, nonpolitical,
representing the best thinking of the most expert and disinterested parties in
the country. The
Conference was ultimately successful. Shortly after the Conference concluded,
Andrew Carnegie averred that “it always comes back to me that Government
control, and that alone, will properly solve the problem [of economic
instability wrought by destructive competition].” As a leading authority on the
origins of railroad regulation wrote:

“When these
efforts [of private business to cooperate in rate setting] failed, as they
inevitably did, the railroad men turned to political solutions to [stabilize] their
increasingly chaotic industry. They advocated measures designed to bring under
control those railroads within their own ranks that refused to conform to
voluntary compacts. … [F]rom the beginning of the 20th century until at least
the initiation of World War I, the railroad industry resorted primarily to
political alternatives and gave up the abortive efforts to put its own house in
order by relying on voluntary cooperation. … Insofar as the railroad men did
think about the larger theoretical implications of centralized federal
regulation, they rejected … the entire notion of laissez-faire [and] most
railroad leaders increasingly relied on a Hamiltonian conception of the
national government.” (Gabriel Kolko, Railroads and Regulation, Princeton, 1965, pp. 3-5) The history and the basic rationale of the
business movement for federal regulation assured that government would remain
subordinate to business domination. The fact of “regulatory capture”, the
domination of the regulatory agencies by executives of the firms supposed to be
regulated, was built into the regulatory regime from the start. Regulation in
the first decade of the twentieth century was openly welcomed by the regulated
interests in nearly every case.Upton Sinclair, perhaps the leading public
intellectual of the time, wrote of the meat industry, “the federal
inspection of meat was historically established at the packers’ request. … It
is maintained and paid for by the people of the United States for the benefit
of the packers.” Representing the large Chicago packers, Thomas E. Wilson publicly
announced: “We are now and have always been in favor of the extension of the
inspection.” The
silliness of the conceit that these rescue efforts were beyond politics is
underscored by their depending entirely on government regulation to enforce
agreements that capital left to its own devices was unable to implement. This
was an epochal consciousness raising for big capital. Government involvement in
the accumulation process was inescapable, and was to be secured only by
deliberate class-concerted mobilization aimed at securing the state for the
interests of big business. Capital learned this lesson well. When the New Deal
was perceived by the most influential businessmen to place workers’ interests
at the center of the state’s agenda, they attempted to organize a coup to
replace FDR with a business-military coalition. When the New Deal-Great Society
period 1949 – 1973 evidenced an influential labor movement, several
large-scale labor actions and the first and only 40-year downward distribution
of income from the top 1 percent to the rest in the nation’s history, elites
perceived this as a major crisis and mobilized in the mid-1970s to sieze
control of the state in order to undo the social programs and business
regulations of the Golden Age, paving the way for the neoliberal macroeconomic
reconfiguration superintended by Reagan, Clinton, Bush pere, Bush fils and Obama.

Both the 2008
bailout of finance capital and the ongoing project of doing away with
government functions designed to promote the interests of workers and regulate
business were put forward as above partisan politics and as requiring for their
implementation governmental action. In both cases elite command of the state
was demanded lest the economy collapse and government be shut down. Since the
establishment early in the twentieth century of corporate oligopoly capitalism
as the nation’s settled economic formation, corporate elites have identified
two key elements of class power: mobilization and control of the State.
Individual efforts are never sufficient to secure interests that are
essentially class-bound. Private collective efforts are indeed necessary, but
never sufficient to safeguard class interests. That goal is a political one,
and as such requires underwriting by the State, and that won’t happen absent control of the State.

John Kenneth
Galbraith argued, in American Capitalism (1956), that as the economy grows, its crises become increasingly severe
and government remedial action greater in scope. We may draw the appropriate
conclusion: increasingly harsh crises will prompt the owning class to demand
increasing control of the State. Let’s not mince words. We are talking about
the creeping -now galloping- privatization of the State. In fact,
domestic policy is now entirely shaped by Timothy Geithner and Ben Bernanke.

The masters of
capital have taught the working class a priceless lesson. You will not get what
you want unless you mobilize in order to capture State power, i.e. power to
turn the State into one whose dominant objective is to further the interests of
the working population. It’s not impossible; it only looks that way.

CODA

That the two
major constituent classes of a capitalist economy must establish an alliance with
the State in order to secure their interests goes farther back than is
indicated in this article and is as inherent a feature of capitalism as the
compulsion to increase profits and the wage labor relationship. In a footnote
in Capital (volume III, p. 270,
International Publishers) Marx comments on the 1863 testimony of Josiah
Wedgewood, of uptown pottery fame, urging Parliament’s Children’s Employment
Commission to effect “some legislative enactment” to limit the working hours of
children. In an uncommon philanthropic gesture, Wedgewood sought to gain
consensus among competing potters to treat child labor less severely. He
implored the Commission: “Much as we deplore the evils before mentioned, it
would not be possible to prevent them by any scheme of agreement between the
manufacturers… Taking all these points into consideration, we have come to the
conviction that some legislative enactment is wanted.”

Alan Nasser is Professor emeritus of Political Economy and
Philosophy at The Evergreen State College. This article is adapted from his
book, The “New Normal”: Persistent Austerity, Declining Democracy and the
Globalization of Resistance will be published by Pluto Press in 2013. If you
would like to be notified when the book is released, please send a request to nassera@evergreen.edu. Follow me on Twitter: http://www.twitter.com/alannasser,
and Like me on Facebook: http://www.facebook.com/alangnasser.